Pages

Tuesday, January 05, 2010

IEA Belatedly Joins the “Peak Oil” Debate

As 2009 drew to a close, the International Energy Agency (IEA) finally and formally admitted that projections on the timing of oil production reaching its peak were no laughing matter and seriously joined the debate. Previously, the IEA, which advises 28 OECD nations on energy issues, had never really been specific about when it thought conventional sources of oil would peak.

I personally recollect having met someone from the IEA in September 2008 on the back of an OPEC summit that year, who talked at length about the matter in private, but refused to discuss the issue on-record. Over the years, some observers have even alleged that the agency was fudging oil production projections.

This clamour, which had always been lurking in the background, gained traction following a report by Dr. Robert L. Hirsch for the U.S. Department of Energy in which he analysed the possible effects of Peak Oil (Viz. Peaking of world oil production: impacts, mitigation, & risk management). A truncated version of his thoughts was later published by the Atlantic Council of U.S.

Hirsch noted: "The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking."

In the four years that followed the Hirsch report, many stories in the popular press ran along the lines that all the easy oil and gas in the world had pretty much been found and that tougher times lay ahead. It is an argument which is not hard to dismiss in its entirety. Curiously enough, as an advisory agency to 28 leading economies, the IEA was somehow was not all that keen on discussing it.

All of that was laid to rest over a dramatic few weeks last month. On December 9th, the agency’s eagerly awaited World Energy Outlook 2009 (WEO) noted that conventional oil, from straight-forward to extract sources, is “projected to reach a plateau before” 2030. In the publication, the IEA is seen to have conducted a serious supply-side analysis including the largest oil fields, their rate of production and decline in its research.

Published material suggests that the IEA sees a decline of 7% in year over year terms over the coming years at these extraction site, nearly double the rate of earlier forecasts. Based on the projected rate of decline, the agency estimates that the world would need four new “Saudi Arabias”, a country which has 24% of the world’s proven crude reserves, by 2030 to meet demand. This too is based on the assumption that global demand remains flat at existing levels as does the rate of production decline.

However, quite frankly the agency still prima facie declined to say that the world has currently entered the era of peak oil. Furthermore, in order to perhaps soften its hard assessment, it pointed out that the first half of 2009 saw 10 billion barrels of new oil discoveries; an annual rate previously unheard of! It also said non-conventional sources such as the Athabasca Tar Sands (Canada) should not be discounted either.

Just as sceptics were rounding up on the agency, IEA Chief Economist Dr. Fatih Birol, set out to paint a more pragmatic picture. Having visited some 21 cities in the run-up the WEO’s release, Birol told several media outlets, most notably The Economist and The Guardian newspaper, that the crude production plateau which the agency mentions in the publication, could potentially arrive as early as 2020.

In a much more detailed conversation with The Economist, Birol also made another interesting observation. He said that a worldwide effort to restrict increase in global temperatures to 2 degree centigrade will restrict the increase in global demand for oil to 89 million barrels per day (bpd) in 2030 as opposed to 105 million bpd if no action is taken. That could, in theory, push back peak oil production scenarios as more time would be needed to produce lower-cost oil that remains to be developed.

Watch this space then - for next two decades that is! This argument is far from over. At least the IEA can now dodge accusations that it is not being realistic its assessments and shying away from debate.

The Oilholic's Tweets

Meet The Oilholic

I am a London based financial writer and oil & gas sector analyst. I commenced my career in 1997 with internships at
several newspapers and CNBC Asia. I have since worked for Informa, CNBC Europe, Canadian Economic Press,
UNI, Infrastructure Journal and IDG among others. At present, I am a columnist for Forbes. Apart from UK-based
work, I have also reported from Canada, China, EU, India, Hong
Kong, Japan, Middle East, Russia, Switzerland and USA. I have written about the oil
& gas sector since 2004 including spot reports, coverage of OPEC summits,
analysis of oil corporations’ financials and exploration data.

The Oilholic's Affiliations

Legal Stuff

Copyright

Content: The author of this blog/website - Gaurav Sharma - retains copyright of any articles and blog posts published here. Unless the author’s written consent is obtained in advance, you may not reproduce, sell, publish, distribute, retransmit, disseminate, perform, display, broadcast, create new works from, or commercially exploit the content available here which is protected under UK copyright law.Photographs & graphics: Copyright and courtesy of third party images and graphs on this blog/website is duly acknowledged and clearly mentioned as, when and where applicable. Additionally, the author of this blog/website - Gaurav Sharma - retains copyright of any images photographed by him or charts and graphs drawn by him as stated where applicable. Unless the author’s written consent is obtained in advance, you may not reproduce, sell, publish, distribute, retransmit, disseminate, perform, display, broadcast, create new works from, or commercially exploit the graphics, photography and broadcast material available here which is protected under UK copyright law.

Legal Disclaimer

Content on this blog/website is for informational purposes only. Commentaries, analysis and articles published are based upon information gathered from various sources believed to be reliable, complete and accurate. However, no guarantee can be made about the validity of the believed sources. All statements, commentaries and expressions on this blog/website including that of the author are opinions and not meant implicitly or explicitly as recommendations, investment advice or solicitation to trade oil and gas products, place spot or futures trades, CFDs or spreadbets. Oil and gas markets can be volatile and opinions may change without notice. This website is an opinion forum and should be interpreted as such. Its content is neither explicitly nor implicitly aimed at endorsing any trading platform(s), pattern(s) or product(s). Links from this website, if any, are being provided for convenience, informational and reference purposes only. They do not constitute an implicit or explicit endorsement by the author of this blog/website in relation to any of information contained in these links or any products, services or opinions offered on such links. The author of this blog/website bears no responsibility for the accuracy, content, or any other matter related to any external site listed here or for that of subsequent links.